Both the ACC fund and the NZS reported respectable investment returns in the 12 months to the end of June 2012, although on face value the two performances look markedly different.

The ACC fund returned an average 9.5 per cent across its portfolios during the year compared to the NZS return of 1.2 per cent over the same period. Taxpayers may be surprised to learn that this means the NZS had a better year than the slightly larger ACC fund. (The ACC fund grew by 23 per cent over the 12 months to reach $20.4 billion at June 30 while at the same date NZS which breached the $20 billion mark in September - sat at just under $19 billion under management.)

It's not fair to compare the fixed income-heavy ACC fund with the equity-loving NZS on the headline figures alone.

For as the benchmark-aware will be aware, nominal returns tell us nothing about the relative risk or skill investment managers have undertaken in order to achieve their performance.

According to the ACC, it beat its benchmark by 0.27 per cent its lowest outperformance in 16 years - while the NZS claimed a 1.44 per cent above-benchmark result.

But before the NZS can pick up the award for best-performing Crown Investment Fund in the financial year (benchmark category), someone with actuarial skills may have to calibrate the benchmarks.

The NZS rates itself against a 'reference portfolio', which in this case is a notional mix of passive investments split 80/20 between growth assets (equities mainly) and fixed income. (It also measures its return versus 90-day Treasury bills.)

Meanwhile, the ACC uses real time 'composite benchmarks' to rate its returns against, citing a proud record of outperformance for 19 of the last 20 years in its report.

The report also takes a crack at the 'reference portfolio' method.

"It could be argued that changes in ACC's composite benchmarks over time make it more difficult to measure performance than would be the case if ACC had always compared itself with the same unchanging 'reference portfolio', an approach which is taken by many other funds," the report says. "However, ACC aims to encourage its investment team to think about allocating between markets based on the factors that are relevant today, and to avoid having allocation decisions distorted by a reference portfolio that had been based on factors that may have changed since the reference portfolio was fixed. "For these reasons, ACC has elected not to adopt a fixed 'reference portfolio'. Further, ACC believes that its changing asset allocation benchmarks have represented a tougher hurdle for measuring performance than any fixed reference portfolio that it would have been likely to have adopted in the past."

While the NZS and ACC may have divergent views on benchmarks, they're both been keen to ramp up their in-house investment capabilities.

For example, the ACC fund now manages some international equities from its base in Wellington with that segment beating "global equity markets by 8.4 per cent" over the year.

NZS, which recently reorganised its 70-plus team, is also looking to take on more in-house with its report saying "there is a good business case for managing investment functions internally when the activity is high net value-add and/or a key control function".

"However, we will need to add to our capability in key areas such as portfolio design and investment analysis," the report says.

It is understood the NZS has yet to fill the role of NZ equities manager as part of its reported move to convert some $3-400 million it currently manages passively into an active in-house pool.

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. He is the editor of industry website Investment News. David has edited magazines and websites for the financial advice, investment and superannuation industries.